Economy, Business And Markets

Normalcy Forecast in Housing Market

Normalcy Forecast in Housing MarketNormalcy Forecast in Housing Market

Housing bubbles have burst and prices have returned to five years ago when accounted for the inflation rate. This signals end of the recession in the key sector and thus a boom is expected in the second half of next calendar year (after Sept. 2016), said Hamed Mazaherian, deputy minister of roads and urban development.

Pointing to the “unprecedented decline” in housing prices seen for the first time in decades, he suggested that further decline in prices is possible, though he admitted that such a statement was a rather “bold prediction”, the website of the Ministry of Roads and Urban Development reported.

The senior official considered low investment returns in the housing sector, difficulties in buying construction materials, red tape, bureaucracy and high interest rates as the primary reasons behind the lingering recession in the housing industry.

 Exorbitant Rates

On why builders and construction companies formally seek high profit margins, Mazaherian said the problem lies not with the nuilders but with banks.

“The high rates lenders usually demand for construction loans compel builders not to settle for lower profits for the housing units, “he said.

“Builders claim that if they had put their money in banks they could get profits as high as 22%. Therefore they consider it their legitimate right to demand high perks after years of their money being blocked in unsold apartments.  That is why they have stopped selling and are waiting for (higher prices) in the coming months.”

 600m Rial Loans

Pointing to the 600-million-rial ($20,000) housing loans he said commercial banks have announced their consent with the new scheme but say they do not the funds to make the loans as banks will pay less interest to customers.

Mazaherian opined that lowering deposit rates could help increase banks’ liquidity, enabling them to fulfill their obligation regarding housing loans.

He elaborated on the woes born out of high lending/deposit rates stating that colossal lending rates apparently discourage builders to start new projects.  He also pointed to deposit rates saying, “High deposit rates propel builders to deposit their money in banks which pay much higher and guaranteed returns compared to the housing sector.”

The rate for the new “housing loan is 21% which is certainly beneficial for the banks. However the banks can have higher returns in ventures like lending inter-bank loans. Therefore they shy away from housing loans.”

The deputy minister, however, noted that to bring the ailing housing market back on track “we need financial institutions that prioritize the development of the housing industry instead of only thinking about (higher) profit.”